Why we cannot keep trying to breath life into the euro corpse
The world economy is on the brink of recession because those countries which have a natural tendency to spend don’t have the money, while those who do have the money don’t want to spend it.
By Roger Bootle
Because the congenital spenders are also the countries which have built up the most debt, this is also the key to the debt crisis.
At the root of this dual disaster lie two fixed exchange rate systems.
The first is the informal system under which various emerging market currencies are managed against the American dollar. This links the world’s biggest congenital spender and deficit country with a series of high growth, and relatively low-spending surplus countries led by China.
The exchange rate aspect is crucial because, if they were free, the currencies of the surplus bloc would rise. This would boost net exports for the US, thus increasing incomes and reducing deficits.